Savings update: rates continue to plummet
Banks and building societies continue to cut rates on both their fixed rate bonds and cash Isas.
The top fixed rate cash Isa is 1.5% tax-free from Virgin Money and Aldermore Bank, while the best deal on the high street comes from Metro Bank at 1.35%. For two years you can earn 1.8% with TSB.
On easy-access cash Isas, Post Office has cut its Online Isa rate from 1.45% to 1.2% for new savers. Virgin Money pays the top rate at 1.41% on its Defined Access Isa, but you are restricted to three withdrawals a year. Coventry BS Easy Isa pays 1.4%.
On fixed-rate taxable bonds the top rate is 1.9% before tax (1.52% after) from Ikano Bank. Internet-based Charter Savings Bank still pays 1.76% (1.41%) but the top deal in the high street has fallen to 1.2% (1.5%), available from Leeds BS and Virgin Money.
For two years you can earn 2.15% (1.72%) with RCI and Ikano Bank. With both these banks you are covered up to €100,000 (around £77,000) by the pan-European compensation scheme, rather than the UK financial services one.
On easy-access accounts, internet bank RCI pays a top 1.55% (1.24%) on its Freedom Account while Shawbrook Bank pays 1.3% (1.04%). Virgin Money pays 1.31% (1.05%) on its Defined Access account, available online and through its stores.
But you are limited to three withdrawals a year. The top branch-based account with no withdrawal restrictions comes from National Counties Building Society at 1.26% (1%).
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.